How will the tenant fee ban affect landlords?

22nd Mar, 2019

In May 2018 the Tenant Fees Bill was introduced to Parliament by Housing Secretary, James Brokenshire MP, and in January of this year it was announced that the ban would apply to all contracts entered into on, or after, 1st June 2019.

But what is the tenant fee ban, and how will this affect landlords?

The fees

When a landlord uses a traditional lettings agent to rent out their property, the tenant will be charged for an ‘application’, to cover the cost of credit checks, referencing, drawing up the agreement and registering the deposit.

On average a person will pay £233, but one in seven will be charged over £700 – and some over £2,000! With more people letting properties and moving more often, this undoubtably puts a huge strain on individuals and families – it was found that 42% of renters had to borrow money just to cover the cost!

The ban

This will see all fees previously charged, stopped. However, landlords and agents can still charge rent, as well as security and holding deposits and tenant default charges.

If anyone fails to comply with the new rule, an initial fine of £5,000 will be issued, and if another breach is committed within five years they will be charged a further £30,000.

The impact on landlords

Tenant’s fees account for approximately 19% – and in some cases as much as 30% – of a letting agent’s income, which will now be lost. Therefore, they will now look to landlords to cover this by increasing their charges, which could be a huge blow for home owners looking to rent out their property.

While many have argued that landlords will in turn put up their rents to recoup the loss, there is evidence that this may not be the case and they will instead absorb this hit. For example, the ban was introduced in Scotland in 2012, and only 2% of landlords were able to increase fees.

Experts have suggested that the possible outcome for landlords will be:

Cut back on making improvements, which will likely result in them not being able to raise rents or attract better quality tenants

Decide to ‘self-manage’ their properties rather than use an agent, which will probably see them struggling to stay abreast of housing rules.

We hope that this has shed some light on the upcoming ban, and what the implications are for landlords. If you have any further questions on this topic, feel free to get in touch with our team and we will do our best to help you.